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New York

Stock markets are plunging across the board

Real estate and Wall Street are closely linked

New York City’s real estate market is known to dance to the tunes of Wall Street, so today’s market mayhem won’t go down well with industry players. The Dow, S&P 500 and NASDAQ all took a pounding, while foreign stock markets are also getting hit hard.

Stocks are having a chaotic day of trading.

At the market open on Monday, the Dow was down more than 1,000 points, the S&P 500 was down 120 points, and the Nasdaq was down 393 points. Near 10:30 a.m., the Dow was down about 290 points, the S&P 500 was down 41 points, and the Nasdaq was down 103 points.

The stock market and the real estate industry, of course, go hand-in-hand. When the former slips, it can lead to deeper economic issues and therefore impact housing. A tumble in the trading world can also affect interest rates.

At current levels both the Dow and the S&P 500 are in corrections, defined as 10 percent declines from the most recent high. Early in the day, Friday’s 530-point sell-off in the Dow looked tame but with the snapback in prices things look a little cleaner.

Amazing how quickly the Dow being down 1.7 percent looks “just okay” (or even good!) instead of catastrophic.
Around the world, asset classes are getting smoked.

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• China’s Shanghai Composite crashed 8.5% in what is now being dubbed China’s “Black Monday.”
• European stock markets are getting obliterated, with Germany’s DAX falling into a full-blown bear market.
• Every stock in Britain’s FTSE 100 is in the red.
• The CBOE Volatility Index, or the “fear index,” has gone parabolic spiking over 45 percent.
• And in an ominous sign for the global economy, commodity prices have plunged to their lowest levels since 1999 while crude oil has made a new post-financial crisis low.

The selling is being attributed to any number of things, including China’s slowdown, renewed uncertainty in Greece and the rest of the eurozone, the stronger dollar, the prospect of higher interest rates, stretched stock valuations, and the list goes on.

And while many have eyed China’s stock market as the main reason for this sell-off, last week we noted that analysts at Bank of America Merrill Lynch dubbed the prospect of the Fed raising rates as the “ultimate risk.”

The idea, in short, is that if central banks stop being as friendly to markets as they’ve been over the last several years, markets will freak out.
“We’ve long felt that the only thing preventing another financial crisis has been extraordinary central bank liquidity and general interventions from the global authorities which we still expect to continue for a long while yet,” Deutsche Bank’s Jim Reid wrote on Monday.

Reid added: “So when policy changes, risks arise. The genesis of this recent sell-off has been the threat of the Fed raising rates next month, but China’s confrontational move two weeks ago and the subsequent knock-on through EM have accelerated us towards something more serious.”

Even the longer-term optimists acknowledge that things could get darker before the dawn.

“This isn’t ‘The Big One’, “Brean Capital’s Peter Tchir wrote, “and while the worst may not be over, it is time to focus on adding risk rather than selling.”